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Collective redundancy consultation – the ‘establishment’ test

Following the demise of Woolworths and the resulting redundancy of thousands of employees across many sites, the law has been in flux as regards the correct trigger for collective redundancy consultation. Following years of litigation, we may be on the cusp of a return to a more employer-friendly position.

What the law was and how it has been challenged

When an employer proposes to dismiss 20 or more employees within a period of 90 days, it is required to consult collectively with representatives of the affected employees. This requirement derives from Europe and the UK legislation that gives effect to it, limits the circumstances in which it applies to those where the 20 or more proposed redundancies are all ‘at one establishment’.

Prior to the Woolworths legislation, this meant that employers often escaped the need to consult collectively if: the proposed redundancies were spread across a number of smaller sites (or ‘establishments’); and the number of redundancies at each of them would be less than 20. Employers would effectively ring-fence each site – even if cumulatively, 20 or more redundancies were proposed across a number of sites.

However, in 2013 the Employment Appeal Tribunal (‘EAT’) decided that this approach was inconsistent with the European Directive from which the law derives and that the ‘at one establishment’ caveat should be deleted. Thus, an employer should look at the entirety of its business and consult collectively whenever the number of redundancies proposed reaches 20 or more, even if spread across a number of smaller sites.

Certainty is important because an employer who gets it wrong may be exposed to claim for a ‘protective award’ (of up to 90 days’ pay) in respect of each affected employee with whom they failed to consult collectively.

A return to the status quo?

The EAT’s decision was appealed in turn, to the Court of Appeal - who referred the ‘establishment’ question to the European Court. The first stage of the European process is an Opinion from the Advocate General: this Opinion is not binding, but the European Court tends to follow it.

On 5 February 2015 the Advocate General delivered its Opinion, that the UK legislation is compatible with the European Directive and that the traditional ‘at one establishment’ test is therefore legitimate – albeit, that what falls within the definition of ‘one establishment’ will always depend on the particular circumstances.

If the European Court takes the same view later this year, employers may be safe to revert to the test they were familiar with before this litigation – namely, deciding whether collective consultation is required by reference to the number of proposed redundancies at each establishment.

But until then, employers should remain cautious and follow the EAT’s decision – that is, look at proposed redundancies across locations and consult collectively where the combined total reaches 20 or more.